There were warnings in 2010 that a prospective MaRS office tower — now dubbed a white elephant because it’s two-thirds empty and reliant on taxpayer support — would be worth almost $400 million only if 80 per cent of its space was rented.
Details are in an appraisal contained within 700 pages of documents released Thursday under pressure from opposition parties furious at Premier Kathleen Wynne’s government for a $309-million bailout of the 20-storey medical laboratory tower across from the legislature.
The appraisal was conducted by Altus Group for the not-for-profit MaRS corporation before construction began.
The Medical and Related Sciences Discovery District was founded 14 years ago to help commercialize publicly funded medical research and other technologies, but critics contend the tower next door to the original MaRS building on College St. was too big and expensive for the country’s relatively small life sciences sector.
“The reader should note MaRS Phase 2 construction and tenant lease contracts are not yet completed,” says the 88-page appraisal that valued the leased building at $340.6 million and lands at $41.5 million for a total of $382.1 million.
“The building value is therefore contingent on the assumption the construction of MaRS Phase 2 has been completed and ready for occupancy and approximately 80 per cent of the rentable area has been committed with lease contracts in place.”
Subsequently, in the summer of 2011, the government agency Infrastructure Ontario required a debt service guarantee of $7.1 million a year from the Ministry of Research and Innovation in the event that a specific portion of the building — blacked out in the documents — was not leased to long-term tenants.
Since February, taxpayers have been on the hook for that guarantee, bankrolling interest payments of $450,000 a month on the tower, which New Democrat MPP Percy Hatfield maintains is like flushing money “down the toilet.”
Officials said certain details have been blacked out to “protect the interests of the people of Ontario” as the government continues to search for tenants at the building.
Economic Development Minister Brad Duguid has defended the purchase and the interest payouts, maintaining, like Wynne, that the building has potential because it’s in the downtown core.
“I have heard absolutely no disagreement that this is not a wise decision to make on behalf of taxpayers,” Duguid said last month.
He was repeatedly asked to provide a business case for the deal.
The documents were given by the government to the legislature’s standing committee on estimates, where opposition MPPs grilled Duguid and officials over four days in mid-October to demand answers on the bailout.
A first inkling of the bailout came during last spring’s provincial election campaign, with Wynne arguing it was “the responsible thing to do.”
In September, fresh from its June 12 majority win, the Liberal government announced it was putting $309 into the office tower, including $224 million to cover the original loan to MaRS from Infrastructure Ontario and $65 million to buy out a U.S. developer, Alexandria Real Estate.
It has also been revealed the Liberals quietly changed the government’s rules in 2010 to allow Infrastructure Ontario to lend money to MaRS, which announced earlier this year it could no longer make payments on the loan.
The building was completed earlier this year.